Chapter 3-6 true/false

Question 1

the goods and services flow and the factors of production flow are both money flows

Answer 1

False: they are both REAL flows

Question 2

individuals in the household sector earn income by receiving payment for the goods and services they did

Answer 2

false: individuals earn incomes from selling their factor services

Question 3

the amount of income in an economy is always equal to the amount of money in the economy

Answer 3

false: income and money are different concepts and are rarely equal, except by coincidence

Question 4

savings equal consumption minus income

Answer 4

false: savings are equal to income minus consumption

Question 5

transfer payments are a flow from the business sector to the government sector

Answer 5

false: they flow from the government to the household (and business) sector

Question 6

at equilibrium aggregate expenditures and income are equal

Answer 6

true

Question 7

the 2 conceptual approaches used to measure GDP are the expenditures approach and the income approach

Answer 7

true

Question 8

one definition of equilibrium income is the income at which total injections equal total leakages

Answer 8

true

Question 9

real GDP in the value of nominal GDP measured in base-year prices

Answer 9

true

Question 10

GDP figures tend to be overstated because they include non-market activities

Answer 10

false: non-market activities are excluded from GDP figures

Question 11

frictional unemployment is likely to be greatest in sunset industries

Answer 11

false: structural unemployment is likely to be largest in sunset industires

Question 12

the natural rate of unemployment is the unemployment rate at full employment

Answer 12

true

Question 13

if the number of job vacancies in an economy is equal to the number of people unemployed, , then cyclical unemployment is zero

Answer 13

true

Question 14

both male and female participation rates in Canada have been steadily rising for the past 20 years

Answer 14

false: female participation rates only have been increasing

Question 15

the higher the rate of inflation, the the lower is the redistribution

Answer 15

false: the higher the redistributive effects

Question 16

cost-push inflation is caused by the total demand for goods and services exceeding the economys capacity to produce those goods

Answer 16

false: demand pull inflation occurs when the total demand exceeds the capacity to produce

Question 17

the real interest rate is equal to the nominal interest rate plus the expected inflation rate

Answer 17

False: it is equal to the nominal rate less the expected inflation rate.

Question 18

real GDP is equal to nominal GDP divided by the GDP deflator times 100

Answer 18

true

Question 19

if the annual inflation rate is 7 percent, then the price level will double in 10 years

Answer 19

true

Question 20

the labour force participation rate is the percentage of the working age population that is included in the labour force

Answer 20

true

Question 21

aggregate demand is the total quantity of final goods and services that consumers, businesses, government, and those living outside the country would buy at different price levels

Answer 21

true

Question 22

the foreign-trade effect is the effect that a change in exports and imports has on the price level

Answer 22

False: it is the effect which a change in the price level has upon exports and imports

Question 23

the aggregate supply curve is upward sloping

Answer 23

true

Question 24

macro equilibrium occurs where the aggregate demand is equal to potential GDP

Answer 24

False: where aggregate demand equals the short-run aggregate supply

Question 25

a change in resource prices will shift both the aggregate supply and the potential GDP curves

Answer 25

False: it will not shift the potential GDP curve

Question 26

an increase in potential GDP has no effect on macro equilibrium

Answer 26

False: it will, because any change in potential GDP will also affect the aggregate supply
and, therefore, equilibrium

Question 27

an increase in aggregate demand will cause an increase in both real GDP and the price level

Answer 27

true

Question 28

an increase in wage rates will cause an increase in both real GDP and price level

Answer 28

False: it will cause a decrease in real GDP

Question 29

according to keynes, the aggregate supply curve is vertical

Answer 29

False: to Keynes, it is horizontal

Question 30

according to neoclassicists, an increase in aggregate demand will have no effect upon real gdp but will cause the price level to increase

Answer 30

true

Question 31

autonomous spending depends on the level of income, whereas induced spending does not

Answer 31

False: it is the other way around.

Question 32

equilibrium income occurs where the value of production is equal to aggregate expenditures

Answer 32

true

Question 33

induced taxes do not change with income, but autonomous taxes do

Answer 33

False: it is the other way around.

Question 34

a change in the price level shifts the aggregate expenditures curve but does not shift the aggregate demand curve

Answer 34

true

Question 35

the real balance effect refers to the effect that a change in interest rate has on the real value of wealth

Answer 35

False: ….change in the price level has on….

Question 36

a decrease in the interest rate will cause an increase in the investment spending

Answer 36

true

Question 37

the value of the multiplier is equal to the inverse of the marginal leakage rate

Answer 37

true

Question 38

growth in an economy’s gdp (if not caused by a change in exports) results in a larger trade deficit or in a reduction of a previous trade surplus

Answer 38

true

Question 39

if taxes increase, disposable income will fall, but consumption will remain the same

Answer 39

False: consumption will fall too

Question 40

if the marginal tax rate increase, then the marginal propensity to expend will be smaller, and the marginal leakage rate will be larger

Answer 40

true